The Wisdom of Hedge Funds Let's examine how this insight could apply to investing. Investors have long been intrigued by hedge funds. After all, top hedge funds pay their staff millions of dollars a year to identify, analyze and invest in the world's best stocks. No wonder hedge funds have a reputation for being Wall Street's "smartest money." Top hedge funds are also famously secretive. Many hedge funds even make their staff sign confidentiality agreements to keep them from sharing the funds' investment secrets. What if you - the average investor - could lift the veil of secrecy that shields hedge funds from the prying eyes of the investment public? What if mom-and-pop investors could find out exactly which stocks Wall Street's leading hedge funds are buying? Well, as it turns out, you can. Every hedge fund that manages more than $100 million must disclose its holdings to the SEC every quarter. Thus, the top holdings of hedge funds become publicly available (though with a 45-day delay). Say you wanted to invest in the same stocks as Bill Ackman's Pershing Square Capital Management. If you know where to look, you could access Pershing Square's largest holdings as it reports them to the SEC. Let's take this a step further. What if you could combine the insights of all the major hedge funds into a single investment portfolio? And thereby tap into the collective wisdom of a wide range of different hedge funds? Put another way, what if you could use the wisdom of crowds to invest in the top stocks of Wall Street's smartest money? The Wisdom of Goldman Sachs As it turns out, this is the exact objective of the Goldman Sachs Hedge Industry VIP ETF (NYSE: GVIP). This ETF - which you can buy at the click of a mouse - allows you to invest in hedge fund managers' top long stock ideas. Here's how Goldman Sachs does it. Goldman screens all the publicly available data of fundamentally driven hedge fund managers. In doing so, it limits itself to hedge funds that hold $100 million or more in U.S.-listed stocks and 10 to 200 distinct equity positions. Goldman then further homes in on the 50 U.S.-listed stocks that appear most frequently in the top 10 holdings of this hedge fund manager universe. Finally, it uses this information to construct the Goldman Sachs Hedge Fund VIP Index, consisting of what Goldman calls hedge fund managers' "Very-Important-Positions." The index weights the 50 stocks equally and holds them until the next quarter, when the portfolio is rebalanced. And remarkably, all this is available to you in the form of an ETF that charges a fraction of what top hedge funds charge. So how has this hedge fund ETF approach fared compared with the benchmark S&P 500? Well, since the market bottomed a year ago, the ETF has been on fire. It returned 57.5% over the past 12 months. That's more than double the S&P 500's return of 26.8% over the same period. Will the ETF's strong performance continue? No one knows for sure. But over the past 12 months of the pandemic, Wall Street's smartest money has shined compared with the broader market. And for those investors betting alongside Wall Street's leading hedge funds, the wisdom of crowds proved its investment mettle. Good investing, Nicholas | 
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